Tesco to merge with Britain's biggest food wholesaler Booker in £3.7bn deal

The companies said the deal would create the "UK's leading food business"

Charles Wilson, CEO of Booker, shakes hands with Tesco CEO Dave Lewis
Charles Wilson, CEO of Booker, shakes hands with Tesco CEO Dave Lewis

Shares in Tesco shot up close to 10 per cent on Friday after Britain's biggest retailer announced that it was merging with Booker, the UK's top food wholesaler, in a £3.7bn deal.

In a joint statement, the two companies said that the combined group would bring benefits for consumers, independent retailers, caterers, small businesses, suppliers, and colleagues, and deliver “significant value to shareholders”.

"This merger [..]. will further enhance Tesco's growth prospects by creating the UK's leading food business with combined expertise in retail, wholesale, supply chain and digital," the chief executive of Tesco, Dave Lewis, said.

Richard Lim, chief executive of Retail Economics said Tesco's announcement to merge with Booker, the owner of will be a "game changer" in the food industry.

“As shopper behaviour continues to evolve rapidly, the new group will be well placed to capitalise on home shopping and the increasingly important area of eating out which has been the growth driver of the experience economy,” he said.

Under the terms of the deal, each Booker shareholder will receive 0.861 new Tesco shares and 42.6 pence in cash. Based on Tesco’s closing share price on Thursday, the deal values each Booker share at 205.3p, which represents a premium of approximately 12 per cent to their closing price.

After the merger, Booker shareholders will own approximately 16 per cent of the combined group. Booker shares ended the day almost 16 per cent higher.

Tesco has endured a turbulent few years and has been plagued by a major accounting scandal but the latest deals shows that it is cementing its status within the industry.

In September 2014, the supermarket admitted that it had identified a £250m overstatement of first-half profits for that year.

The UK’s supermarket watchdog later found that Tesco deliberately and repeatedly withheld money owed to suppliers to boost its sales performance artificially, in a serious breach of supermarket regulations.

Scores of investors sued the company as a result of a dramatic fall in the group's share price, alleging they lost millions because they bought shares on the basis of misleading accounts.

But more recently, the company has managed to move on from that. It's focused hard on reviving its main grocery business in its home market, selling its South Korean business and divesting in Turkey too. It's also sold off its Giraffe restaurant chain.

Late last year market researcher Kantar Worldpanel said Tesco's sales were rising at the fastest pace for three years.

The merger is subject to approval by regulators and is expected to be completed in late 2017 or early 2018, the two companies said.

Greenhill has been appointed as lead financial adviser to Tesco, with Barclays acting as financial adviser, sponsor and corporate broker and Citi acting as financial adviser and corporate broker. JP Morgan Cazenove is financial adviser and corporate broker for Booker.

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